Guide
E-commerce profit margin
Profit margin is the share of each sale you actually keep. In e-commerce it's easy to misread, because gross margin can look healthy while net margin is thin once ad spend, fees, and shipping are counted. Here's how to measure it properly and the levers that move it.
Gross margin vs net margin
Gross margin is revenue minus cost of goods sold, divided by revenue. It tells you whether your product is priced above what it costs to make. Net margin goes further and subtracts everything else: ad spend, platform and payment fees, shipping, software, and taxes. Net margin is the one that reflects what the business actually keeps.
Five ways to improve it
Lower cost of goods
Negotiate supplier pricing, order in larger runs where it makes sense, or trim packaging. Every dollar off COGS flows straight to margin.
Tighten ad spend
Ad spend is often the biggest hidden drain. Watch profit per channel, not just sales, and cut campaigns that bring revenue but no margin.
Reduce fees where you can
Platform, payment, and transaction fees add up. Knowing the exact total per order tells you whether a product is worth selling at its current price.
Fix or drop losing products
Some products sell well and still lose money after costs. Measuring margin per product tells you which to reprice and which to retire.
Raise prices deliberately
A small, well-tested price increase often lifts margin more than chasing extra volume, because it doesn't add COGS, fees, or shipping per unit.
Know your margin, by product
TrueProfit tracks revenue and every cost, then shows net margin by month and by product so you know what to fix. Free to start, no credit card.
Start freeFAQ
How do I calculate e-commerce profit margin?
Take your net profit (revenue minus COGS, fees, ad spend, shipping, and other costs), divide it by revenue, and multiply by 100. For gross margin instead, use only revenue minus cost of goods sold. Net margin is the number that tells you if the business actually made money.
What's a good profit margin for e-commerce?
It varies a lot by category, price point, and how much you spend on ads, so there's no single benchmark that fits everyone. The more useful approach is to measure your own margin consistently and watch whether it's trending up or down over time.
Why does my margin look fine but my bank balance doesn't?
Usually because gross margin looks healthy while net margin is thin once ad spend, fees, and shipping are counted. Gross margin ignores those costs. Tracking net margin, after everything, closes the gap between the numbers and your actual cash.
Which cost usually hurts e-commerce margin most?
For many stores it's ad spend, because it scales with how hard you push growth and is easy to under-count across multiple platforms. Cost of goods and shipping matter too, but ad spend is often the one that quietly turns a profitable product into a break-even one.